Business Ethics
Lecturer: Piet Westerhuis
Windesheim University,Zwolle
The Netherlands
Introducing
Business Ethics
Lecture 1
Overview
• What is business ethics?
• Why is business ethics important?
• Globalization: a key context for business
ethics?
• Sustainability: a key goal for business ethics?
What is business ethics?
Business ethics is the study of business
situations, activities, and decisions
where issues of right and wrong are
addressed.
Ethics and the law
Ethics
grey
area
Law
Defining morality, ethics and ethical
theory
• Morality is concerned with the norms, values
and beliefs embedded in social processes
which define right and wrong for an individual
or a community.
• Ethics is concerned with the study of morality
and the application of reason to elucidate
specific rules and principles that determine
right and wrong for any given situation.
• These rules and principles are called ethical
theories.
The relationship between morality,
ethics and ethical theory
… to
produce
ethical
theory …
Ethics
rationalize
s morality
…
Morality
Ethics
Ethical
theory
…that can
be applied
to any
situation.
Potential
solutions to
ethical
problems
Why is business ethics important?
1.
2.
3.
4.
5.
6.
7.
Power and influence of business in society
Potential to provide major contribution to society
Potential to inflict harm
Increasing demands from stakeholders
Lack of business ethics education or training
Continued occurrence of ethical infractions
Interesting and rewarding
Types of misconduct across sectors
27%
20
25%
24%
24%
22%
21%
20%
21%
19%
10
© 2008 Ethics Resource Center
30
Nonprofit
Business
Government
0
Putting own interests
Lying to
employees
Abusive behavior
ahead of org
Source: Ethics Resource Center (2008)
Observed ethical misconduct across
sectors
60%
57%
57%
52%
56%
52%
55%
50%
46%
55%
46%
49%
43%
© 2008 Ethics Resource Center
75%
Nonprofit
25%
Business
Government
0%
2000
2003
2005
2007
Source: Ethics Resource Center (2008)
Differences across organizational types
Stakeholders
Large
corporations
Small
businesses
Civil society
organizations
Public sector
organizations
Main priorities
in addressing
ethical issues
Financial integrity,
employee/customer
issues
Financial integrity,
employee/customer
issues
Delivery of mission
to clients; integrity of
tactics; legitimacy
and accountability
Rule of law,
corruption, conflict of
interest; procedural &
accountability issues
Approach to
managing
ethics
Formal, public
relations and/or
systems-based
Informal, trustbased
Informal, valuesbased
Formal, bureaucratic
Responsible
and/or
accountable to
Shareholders and
other stakeholders
Owners
Donors and clients
General public, higher
level government
organizations
Main
constraints
Shareholder
orientation; size and
complexity
Lack of resources
and attention
Lack of resources
and formal training
Inertia, lack of
transparency
Globalization: a key context for
business ethics?
What is globalization?
• Globalization is not the same as:
– ‘internationalization’
– ‘westernization’
• Globalization is: a process which diminishes the
necessity of a common and shared territorial
basis for social, economic, and political
activities, processes, and relations.
– ‘deterritorialization’
Relevance of globalization for
business ethics
• Cultural issues
• Legal issues
• Accountability issues
Globalization can affect all stakeholders of the
corporation
Ethical impacts of globalization
Stakeholders
Shareholders
Employees
Ethical impacts of globalization
Globalization provides potential for greater profitability, but also greater risks. Lack of
regulation of global capital markets, leading to additional financial risks and instability.
Corporations outsource production to developing countries in order to reduce costs in global
marketplace - this provides jobs but also raises the potential for exploitation of employees
through poor working conditions.
Consumers
Global products provide social benefits to consumers across the globe, but may also meet
protests about cultural imperialism and westernization. Globalization can bring cheaper
prices to customers, but vulnerable consumers in developing countries may also face the
possibility of exploitation by MNCs.
Suppliers &
competitors
Suppliers in developing countries face regulation from MNCs through supply chain
management. Small scale indigenous competitors exposed to powerful global players.
Civil society
(NGOs, etc)
Global business activities brings the company in direct interaction to local communities
with possibility for erosion of traditional community life; globally active pressure groups
emerge with aim to “police“ the corporation where governments are weak and tolerant.
Government &
regulation
Globalization weakens governments and increases the corporate responsibility for jobs,
welfare, maintenance of ethical standards, etc. Globalization also confronts governments
with corporations from different cultural expectations about issues such as bribery,
corruption, taxation, and philanthropy.
International perspectives on
business ethics
Different approaches to business
ethics
• Who is responsible for ethical conduct in
business?
• Who is the key actor in business ethics?
• What are the key ethical guidelines for ethical
behaviour?
• What are the key issues in business ethics?
• What is the most dominant stakeholder
management approach?
Regional differences: Europe, North
America, Asia
Europe
N. America
Asia
Social control by the
collective
The individual
Top management
Who is the key actor in business
ethics?
Government, trade
unions, corporate
associations
The corporation
Government,
corporations
What are the key guidelines for
ethical behaviour?
Negotiated legal
framework of business
Corporate codes of
ethics
Managerial
discretion
What are the key issues in
business ethics?
Social issues in
organizing the
framework of business
Misconduct and
immorality in single
decisions situations
Corporate
governance and
accountability
What is the dominant stakeholder
management approach?
Formalised multiple
stakeholder approach
Focus on shareholder
value
Implicit multiple
stakeholder
approach, benign
managerialism
Who is responsible for ethical
conduct in business?
Sustainability: a key goal for
business ethics?
Defining sustainability
• Sustainable development is development
that meets the needs of the present without
compromising the ability of future generations
to meet their own needs. (World Commission
on Environment and Development 1987)
• Sustainability refers to the long-term
maintenance of systems according to
environmental, economic and social
considerations
The three components of
sustainability
Economic Social
Environmental
Triple bottom line
• Coined by John Elkington
• Bottom line thinking suggests sustainability as
a goal
• Three dimensions:
– Environmental perspectives
– Economic perspectives
– Social perspectives
Corporate commitments to
sustainability
Company
Sustainability statement
Source
BP
“At BP we define sustainability as the capacity to endure as a group: by
renewing assets; creating and delivering better products and services that meet
the evolving needs of society; attracting successive generations of employees;
contributing to a sustainable environment; and retaining the trust and support
of our customers, shareholders and the communities in which we operate.”
Sustainability
Report, 2007
DeBeers
“[Sustainability] means enhancing our relationship with host and partner
governments, building consumer confidence in diamonds, and ensuring our
activities contribute positively to … both present and future generations.”
www.debeersgr
oup.com, 2009
Nokia
“Corporate responsibility (CR) at Nokia is a collective effort. We believe that
management of CR issues is most effective when sustainability policies and
programs are embedded in every aspect of our operations. ”
CSR Report,
2007
Toyota
Volkswagen
“ [For Toyota, a guiding principle is] ‘contributing to the development of a
prosperous society through the manufacture of automobiles.’ ‘Contributing to
the development of a prosperous society’ means ‘contributing to the
sustainable development of the earth.’”
“Values, social responsibility and active sustainability are integral [to] our
company culture. We are future-oriented in our approach to important issues
such as climate change. We operate a broad range of [R&D] activities and
provide trend-setting approaches to the mobility of tomorrow.”
Sustainability
Report, 2008
www.volkswage
nag.com, 2009
Summary
• Definition of business ethics
• Business ethics is vital for business in
contemporary capitalism
• Global view is essential to understand ethical
issues
• Different regions have distinctly different
perspective on business ethics issues
• Sustainability is an important goal for
business ethics